New program helps avoid foreclosures

Published: Friday, February 8, 2013 at 1:00 a.m.

Last Modified: Thursday, February 7, 2013 at 8:42 p.m.

New incentives from federal government-controlled Fannie Mae and Freddie Mac will make it easier for recession-battered borrowers in Southwest Florida to walk away from their homes beginning next month.

New guidelines slated to take effect March 1 nationwide will allow some delinquent borrowers to hand their keys over to lenders through a so-called "friendly foreclosure" that will leave fewer financial scars than a typical foreclosure action.

The federal plan for deeds-in-lieu of foreclosures is one in a series of efforts by the nation's largest lenders to avoid costly foreclosure battles.

For Florida, the move also is likely to ease a wave of defaults threatening to clog the state's court systems anew, while giving the hungry home market some new properties to list.

"A lot of this stems from how long the foreclosure process takes in Florida," said Scott Petersen, a Sarasota foreclosure attorney. "Short sales and deeds-in-lieu are much faster than going through the whole mess."

In a deed-in-lieu of foreclosure, homeowners voluntarily give property back to lenders, cancelling existing loans when the deed is transferred. At the same time, lenders halt any other foreclosure proceedings and may forgive a balance deficiency from the sale of the property.

A deed-in-lieu does cause a greater hit to borrowers' credit histories than a short sale, but it is less costly than a traditional foreclosure.

Fannie Mae and Freddie Mac, which have required $188 billion in taxpayer support to stay afloat amid the prolonged housing collapse, next month will begin offering loan servicers $1,500 for every deed-in-lieu they complete.

The federal mortgage giants also will kick in $6,000 to second-lien holders to expedite the process, the government said.

To qualify, buyers who are more than 90 days behind on their payments must prove a hardship such as unemployment, divorce or death of a spouse. Borrowers who are current on their mortgages but owe more than their home is worth must show a debt-to-income ratio above 55 percent.

Some homeowners may also qualify for up to $3,000 for relocation under the new rules.

Real estate attorneys in Southwest Florida say a deed-in-lieu should still take a backseat to other loss prevention strategies. They also do not make much sense for the banks, said Anne Weintraub, a real estate attorney in Sarasota.

"The lender now must maintain the property, hire the Realtor, pay the closing costs, and do everything the homeowner would have done," she said. "This adds to the lender's loss."

The industry in November set new short-sale guidelines to expedite approvals, part of a similar push to dodge foreclosures.

The idea behind both plans is to lessen the flow of new cases that have continued to cripple states -- like Florida -- that use judicial systems to process home defaults.

Total foreclosure filings jumped 30 percent between Sarasota and Manatee counties last year. That increase contributed to a backlog of 16,446 pending foreclosure cases as of Oct. 31 in the region's 12th Judicial Circuit -- a backlog court officials estimate will take up to four years to resolve.

New prevention initiatives also should allow distressed homes to enter the resale market more quickly, and help restore the supply of available homes for sale. In Sarasota, inventory levels have slipped below four months' worth.

About 7 percent of those listings, or 791 total properties, are bank-owned, MLS records show.

"It's very important to get these properties back on the market," said Jo Ellyn Yturraspe, a Realtor with Coldwell Banker in downtown Sarasota. "Banks, especially Fannie Mae, price them realistically, and they are moving very quickly."

<p>New incentives from federal government-controlled Fannie Mae and Freddie Mac will make it easier for recession-battered borrowers in Southwest Florida to walk away from their homes beginning next month.</p><p>New guidelines slated to take effect March 1 nationwide will allow some delinquent borrowers to hand their keys over to lenders through a so-called "friendly foreclosure" that will leave fewer financial scars than a typical foreclosure action.</p><p>The federal plan for deeds-in-lieu of foreclosures is one in a series of efforts by the nation's largest lenders to avoid costly foreclosure battles.</p><p>For Florida, the move also is likely to ease a wave of defaults threatening to clog the state's court systems anew, while giving the hungry home market some new properties to list.</p><p>"A lot of this stems from how long the foreclosure process takes in Florida," said Scott Petersen, a Sarasota foreclosure attorney. "Short sales and deeds-in-lieu are much faster than going through the whole mess."</p><p>In a deed-in-lieu of foreclosure, homeowners voluntarily give property back to lenders, cancelling existing loans when the deed is transferred. At the same time, lenders halt any other foreclosure proceedings and may forgive a balance deficiency from the sale of the property.</p><p>A deed-in-lieu does cause a greater hit to borrowers' credit histories than a short sale, but it is less costly than a traditional foreclosure.</p><p>Fannie Mae and Freddie Mac, which have required $188 billion in taxpayer support to stay afloat amid the prolonged housing collapse, next month will begin offering loan servicers $1,500 for every deed-in-lieu they complete.</p><p>The federal mortgage giants also will kick in $6,000 to second-lien holders to expedite the process, the government said.</p><p>To qualify, buyers who are more than 90 days behind on their payments must prove a hardship such as unemployment, divorce or death of a spouse. Borrowers who are current on their mortgages but owe more than their home is worth must show a debt-to-income ratio above 55 percent.</p><p>Some homeowners may also qualify for up to $3,000 for relocation under the new rules.</p><p>Real estate attorneys in Southwest Florida say a deed-in-lieu should still take a backseat to other loss prevention strategies. They also do not make much sense for the banks, said Anne Weintraub, a real estate attorney in Sarasota.</p><p>"The lender now must maintain the property, hire the Realtor, pay the closing costs, and do everything the homeowner would have done," she said. "This adds to the lender's loss."</p><p>The industry in November set new short-sale guidelines to expedite approvals, part of a similar push to dodge foreclosures.</p><p>The idea behind both plans is to lessen the flow of new cases that have continued to cripple states -- like Florida -- that use judicial systems to process home defaults.</p><p>Total foreclosure filings jumped 30 percent between Sarasota and Manatee counties last year. That increase contributed to a backlog of 16,446 pending foreclosure cases as of Oct. 31 in the region's 12th Judicial Circuit -- a backlog court officials estimate will take up to four years to resolve.</p><p>New prevention initiatives also should allow distressed homes to enter the resale market more quickly, and help restore the supply of available homes for sale. In Sarasota, inventory levels have slipped below four months' worth.</p><p>About 7 percent of those listings, or 791 total properties, are bank-owned, MLS records show.</p><p>"It's very important to get these properties back on the market," said Jo Ellyn Yturraspe, a Realtor with Coldwell Banker in downtown Sarasota. "Banks, especially Fannie Mae, price them realistically, and they are moving very quickly."</p>